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Bull of the Day: Regeneron (REGN)

Regeneron (REGN - Free Report) is a $48 billion biotechnology company based in Tarrytown, New York that develops drug therapies for a range of diseases, including rheumatoid arthritis, asthma, pain, cancer and infectious diseases.

The company is probably best known for Eylea, its treatment for wet age-related macular degeneration. Since launching in 2011, Eylea surpassed $5 billion in global sales in 2016 as the drug continues to expand into additional therapeutic indications.

The Regeneron Story

REGN was a sub-$50 stock for most of its two decades as a public company until the launch of Eylea grabbed Wall Street's attention. They now boast 5,550 employees of which 730 possess an MD, PhD or PharmD degree.

Regeneron utilizes its discovery platform to create fully human monoclonal antibodies and their nearly 3 decades of science R&D has resulted in five FDA-approved medicines and numerous product candidates, including 15 antibodies currently in clinical trials across multiple therapeutic areas.

Regeneron's platform VelociSuite technology has helped generate a broad array of promising human monoclonal antibodies, including the recently launched Praluent and Dupixent, and yields one of biotech's most full pipelines.

Why the Vault from $366 to $454?

The company delivered their quarterly report on May 4 and despite an earnings miss, the outlook for sales of their recently approved and launched dermatitis drug Dupixent sent Wall Street analysts and investors scrambling to raise estimates and buy more shares.

The Zacks EPS consensus for this year moved up from $10.16 to $10.52, representing 27% growth. And full-year 2018 estimates jumped from $10.90 to $12.10 for 15% growth.

Revenues are expected to hit $5.45 billion this year and $6.22 billion next year, for 12% and 14% sales growth respectively.

But it's the early prescription data for Dupixent that has investors really excited. I bought shares of REGN on April 27 for my new Zacks Healthcare Innovators portfolio, inspired by what I thought was an irresistible dip to $360. Here's what I told my subscribers on Friday May 12...

Once again, another week where REGN needs no explaining as the stock poked its nose over $450 at one point today, generating an open gain over 23%. Our timing was very fortuitous as we caught a great asset near the bottom of expectations and the height of uncertainty. Now she's firing on all cylinders as sales ramp up for Dupixent as a first line systemic treatment for moderate-to-severe atopic dermatitis (AD) patients.

The drug was launched at a WAC (wholesale acquisition cost) price of $37,000 annually and based on recent commentary from management and partner Sanofi (SNY - Free Report) , analysts believe that market access for the drug is progressing well, with coverage for several major payers/PBMs secured. More than 1,800 healthcare providers have already written more than 3,500 prescriptions thus far.

Since that is only about 25% of physicians targeted, second quarter prescriptions are expected to hit 6,500 with about 4,000 patients on the drug. If we multiply 4K X $37K we get $148 million for the year, divided by 4 for the quarter would equate to roughly $37 million in revenue. But these rough projections are based on the full price of $37K. Obviously, there will be discounts, etc.

(end of May 12 commentary)

Don't Forget Kevzara for RA

I would be remiss not to mention this REGN drug too. Here's what I told my subscribers on April 28, the day after we bought REGN...

Today, our "lucky" timing was impeccable again with Regeneron.

The company announced, along with "big brother" partner Sanofi (SNY - Free Report) , the giant French pharmaceutical company, that their rheumatoid arthritis (RA) drug Kevzara had its resubmission of a biologics license application (BLA) accepted by the FDA.

This news came sooner than expected, on the heels of last week's approval in Europe. And investors and analysts are excited about it because REGN is expected to have an aggressive pricing strategy, potentially disrupting the US RA market.

One analyst is modeling world-wide Kevzara sales of $52 million, $284 million, and $519 million over the next 3 years.

I'm just glad that market players were so pessimistic yesterday driving the stock down to 2 month lows and "triggering my appetite" for buying great companies on sale.

As I expressed yesterday on our buy, I saw about 5% downside and over 20% upside for a solid science franchise. That's a risk/reward equation you can sink your teeth into!

(end of 4/28 commentary)

Too Far, Too Fast?

Since my Healthcare Innovators is a long-term portfolio, I will be holding REGN shares for a while, barring any company "miscalculations" or extreme R&D issues. But many investors are wondering if they should buy shares here at roughly 40 times next year's expected profits.

This decision is made more complicated by Wall Street analysts who collectively maintain an average price target around $436. Credit Suisse reiterated their "Buy" rating yesterday along with their $485 price target, stealing the high end from Canaccord Genuity who upgraded REGN to "Buy" with a $484 target on May 5.

So, will analysts be watching each other to see who moves first to a $500+ target and 40X+ valuation, or will the stock fall back to reality near $400?

The difference maker will be the sales of Dupixent. If the sales surprise to the upside, estimates and price targets will keep going one direction: UP.

And we won't have to wait until early August when both REGN and SNY report again. Analysts are constantly tracking weekly prescription and sales estimates and plugging them into their earnings models.

REGN's all-time high was just above $600 in August of 2015. I predict we'll see $500 before this August.

Disclosure: I own REGN shares for the Zacks Healthcare Innovators portfolio.

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